Singapore LLC vs LLP vs Sole Proprietorship
When it comes to setting up a company in Singapore, entrepreneurs have the option of choosing between an LLC, LLP or Sole Proprietorship. Find out the differences between the three in terms of compliance, tax benefits and the advantages and disadvantages of each of these business entities.
This guide provides a comparison of Limited Liability Company (also known as Private Limited Company or PLC), Sole Proprietorship, and Limited Liability Partnership entity types to assist you in choosing the most appropriate business structure for your needs.
Sole Proprietorship in Singapore is not an incorporated entity and therefore has no separate legal identity. In the eyes of the law and the public, you as the owner and your sole proprietorship business are one and the same. Therefore, you have complete control over the business and its operations but at the same time, you are also personally responsible for all debts and legal actions against the business.
A Singapore Limited Liability Company (LLC) and Limited Liability Partnership (LLP) have its own legal identity, separate from its shareholders (who own the company) and its directors (who manage the company). What this essentially implies is that the entity
- can incur and receive obligations and hold property in its own name, enter into contracts with its members, directors, employees and with third parties
- can sue and be sued in its own name
- continues unchanged even if the identity of its participants changes.
- can enter into legal relationships with its members or directors.
|No separate legal identity||Separate legal entity||Separate legal entity|
Since a sole proprietorship does not have a separate legal entity, the owner has unlimited liability. In other words, creditors may sue you for debts incurred and can also obtain a court order to claim against your personal assets, including your property. There is no protection offered for your personal assets.
Since LLPs and LLCs in Singapore are set up as limited liability legal entities, their business obligations remain within the entity itself and thus shield their members (partners and shareholders respectively) via the provision of limited liability. Essentially it means that your exposure is limited to the amount you have invested in the entity and your personal assets are protected.
|Unlimited liability – Owner are personally accountable for debts and losses||Limited Liability – Each limited partner’s liability is limited to his investment in the LLP
||Limited Liability – Each shareholder’s liability is limited to his investment in the company|
Perpetuity and Succession
As a sole proprietor, you and your business are inseparable. Your business has no perpetuity and comes to a standstill with your retirement or demise. An LLP and LLC on the other hand have a continued existence irrespective of the status of its partners or directors and shareholders. The resignation or death of a member does not normally affect the continued existence of an LLP or LLC.
|Lacks perpetual succession||Enduring structure beyond members' death or retirement||Enduring structure beyond members' death or retirement
Ease of Expansion
Central to the growth and expansion of your business is capital.
As a sole proprietor, it’s quite difficult to raise external capital through loans or investment in your business. Capital is limited to your personal finances and the profits generated by the business. To secure loans from banks and lending institutions, you must be prepared to put up your personal assets as collateral. Thus, business expansion is difficult and many sole proprietorships never really take off. Also, in a sole proprietorship, there can only be one owner which means you have no way of adding another partner to your business setup.
Generally, LLPs also face the difficulty of raising external capital, which is often limited to its partners’ contributions.
As a private limited company setup, you can take advantage of the ability to raise capital by means of adding equity partners, venture funds, business financing, etc. Investors are more likely to invest in a company where there is a formal separation between personal and business assets. In general, banks prefer to lend money to companies than sole proprietorships or LLPs.
|Difficult to raise capital. Limited to private finances and partners' contributions.||Difficult to raise capital. Limited to private finances and partners' contributions.||Easier to raise capital
Sole proprietorships and LLPs in Singapore are not taxed at the business level but at the personal income level of the owners. For sole proprietors, all business profits are considered as personal income for the owner and therefore taxed as part of the personal income at the personal income tax rate. Similarly for LLPs, profits are distributed among partners as per the partnership agreement and treated as part of each partners’ personal income and are taxed at personal income tax rates.
An LLC or Private Limited Company in Singapore is taxed at the corporate tax rate and enjoys various tax exemptions available for companies. The effective corporate tax rate for an LLC with profits up to S$300,000 is below 9% and capped at 17% for profits above S$300,000. Furthermore, for the first three years of the company's incorporation, there is zero tax on the first S$100,000 of profits each year. Singapore follows a single-tier tax policy which means once the income has been taxed at the corporate level, dividends distributed to shareholders are tax-free.
|Taxable Income||Approximate tax for Sole Proprietorship
||Approximate tax for LLP||Approximate tax for LLC (also known as Private Limited Company)|
Transfer of Ownership
A sole proprietorship or LLP, cannot be sold as whole. Instead, the assets, licenses and permits will need to be transferred individually.
On the other hand, full or partial ownership of a company can be easily transferred for an LLC, without disrupting operations through the sale of stock.
|Difficult to transfer ownership of business||Difficult to transfer ownership of business||Easy to transfer partial or full ownership of the company|
A sole proprietorship is the easiest and least expensive form of business structure to set up and maintain in Singapore. The government fee for sole proprietorship registration is S$65 and minimal paperwork is required. There are no ongoing filing requirements except the annual renewal of the sole proprietorship.
LLP registration is more complex than a sole proprietorship but less complex than an LLC or private limited company. The Singapore government registration fee is S$165 plus you will likely need professional help in drafting a partnership agreement. In terms of annual compliance requirements, an LLP must submit an annual declaration of solvency or insolvency to authorities. There are no other documents to be filed.
LLC registration is a little more complex than the above two entities and the government registration fee is S$315. Also, annual filing requirements are more complex such as the need to file annual accounts, tax return, holding Annual General Meeting, etc. It is recommended for you to hire a professional firm (corporate secretarial, accounting, or a law firm) to handle the initial company setup as well as ongoing compliance requirements of the company. In other words, the flexibility, power, and advantages of a private limited company come at a certain price.
|Sole Proprietorship||LLP||LLC (also known as Private Limited Company)|
|Minimum setup and compliance costs and paperwork||Moderate setup and compliance costs and paperwork||Complex setup and compliance costs and paperwork|
The perception about your business among your vendors, employees, bankers and customers can significantly alter the destiny of your business. Sole proprietorship entity is the least preferred type of setup for serious business from a public perception point of view whereas a company has the most powerful perception. A private limited company structure communicates seriousness, credibility and stature.
|Sole Proprietorship||LLP||LLC (also known as Private Limited Company)|
|Low public perception||Moderate public perception||Highest credibility and strong public perception|
Terminating a sole proprietorship is easier than terminating an LLP or a private limited company. For a sole proprietorship, the procedure calls for issuing a notice of termination followed by a notice of cessation to registration authorities. However terminating an LLP or LLC is more complex. You can either choose to strike off or wind up your operations. Although striking off is less complex, there are certain statutory requirements that need to be fulfilled before you can take the strike-off route. The termination process, in either case, can take anywhere between 3-12 months, depending on the complexities involved.
Which Option to Choose?
Of all the three entities, setting up an LLC or private limited company is the best choice for inspiring entrepreneurs in Singapore. Your personal assets are protected from business liabilities, you enjoy special tax incentives from the government, and you have a structure that allows you to grow your business. To find out more about setting up a private limited company, refer to Singapore Company Registration guide.